I was reading this BusinessWeek article about the recent financial market mess:

“If you don’t trust the value of an asset, you won’t be willing to buy it no matter how cheap your borrowing costs are….What brings this to an end, ultimately, is better information and transparency.”

Apply this idea to the software market, and more specifically, to the software acquisition process.

OSS provides transparency as the code is available in the open. OSS can also be more transparent than Traditional software depending on whether future product discussions happen in the open.

OSS can also provide better information by allowing potential customers to use the product before purchasing support, (or running without support).

Better information and transparency build trust. It goes without saying that building trust was, and remains, a key hurdle for startups. The fact that OSS can help build customer trust explains why so many enterprise software startups choose to incorporate OSS into their business model. Historically, a brand has been the embodiment of the level of trust that a customer places in a vendor’s products. For startups, their brand has yet to be associated with a level of customer expectations. Hence, building trust through better information and transparency is vital to success.

Enterprise software startups can gain customer trust without going down the OSS route. Free (but not open source) software and trials are two alternatives. One could argue that shareware has been around for decades, and yet hasn’t helped the average enterprise software vendor build customer trust in the way that OSS does. There is clearly a transparency benefit (via the source) that helps build customer trust faster than free (but closed) software or trialware does.

A question I’ve been thinking about but haven’t fully developed an answer: Can a vendor drive more revenue by:

  1. Distributing 10 million copies of an OSS product and then trying to convert 0.001%-0.01% of the user base into paying support customers
  2. Marketing & selling a commercial (non-OSS) product which is able to attract 10,000 paying customers (maybe using a SaaS model?)